How is the performance of the international financial market? We can tell by looking at the trend of U.S. Treasury bonds.

Last night, the prices of U.S. Treasury bonds fell again, and the yield increased significantly, causing a violent fluctuation in the global financial market, especially with the largest drop in the U.S. stock market.

The fluctuations in the foreign exchange market were also significant, with the Chinese yuan breaking through 6.89, and it may break through the 6.90 threshold in the short term.

The actions of the Federal Reserve may be unexpected!

01, U.S. Treasury bonds fall

Yesterday in the bond market, the prices of U.S. Treasury bonds fell again.

Among them, the yield on 10-year Treasury bonds continued to rise, breaking through 3.8% last week, and exceeded 3.9% last night, reaching a maximum of 3.941%, which is the highest level since early November last year.

In other words, the price of 10-year Treasury bonds has fallen back to the level of early November last year, and the rebound of more than two months has been completely erased.

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The yield on 7-year Treasury bonds reached 4.1%, and the highest yield is the 6-month term, which has exceeded 5%.

It seems that the funds that bought at the bottom during the rise of U.S. Treasury bonds a while ago are now likely to be trapped.The renewed decline in U.S. Treasury prices is closely related to the market's judgment on the Federal Reserve's attitude towards interest rate hikes.

Some time ago, the financial market was relatively optimistic because it was anticipated that the Federal Reserve would pause interest rate hikes. However, it is now clear not only that a pause is impossible, but there is even a possibility of a 50 basis point rate hike in March.

Forecast models indicate that the probability of the Federal Reserve raising interest rates by 50 basis points in March of this year has reached 24%.

02, U.S. stocks fall by 700 points

In addition to the decline in the bond market, the drop in stocks appears even more spectacular.

By the close of trading in the early morning, the Dow Jones Industrial Average plummeted by 697 points, and all three major indices closed with a drop exceeding 2%. The S&P 500 index broke through the 4,000-point mark, and the Nasdaq index suffered the largest decline, reaching 2.5%.

So far, the year-to-date gains of the Dow Jones Industrial Average have been completely erased, and compared to the beginning of the year, it has now even fallen by 0.02%. The index's drop of nearly 700 points last night was also the largest decline this year, with the last drop of over 700 points dating back to December 15th of last year.

The Nasdaq index has been the best performer since the U.S. stock market rebounded, with a year-to-date increase of over 15%, but now the increase has also contracted to only 10%.

Furthermore, the European stock markets, which closed earlier, almost all fell, with only the Russian stock market rising by 0.8%, while the UK, France, Germany, and Italy all declined.

This morning, as the Asian stock markets just opened, the Japanese stock market had already fallen by more than 0.9% at the start.The fluctuations in the foreign exchange market are also quite significant.

Yesterday, the offshore exchange rate of the Chinese yuan against the US dollar fell to a low of 6.8958, which is the second time it has returned to this level after the yuan appreciated beyond 6.89 on January 6th this year.

03, Retail Investors Flood In

In fact, not all economic data is entirely negative. The latest PMI figures released are better than expected and have slightly improved compared to last month, indicating that the US economy has transitioned from a previous contractionary state back into an expansionary state.

However, the US stock market has become accustomed to treating good data as bad news. An overheating economy means that the Federal Reserve has no choice but to continue raising interest rates and maintain higher rates.

From a capital perspective, the risk of the US stock market is also relatively high. Recently, several Wall Street investment banks have repeatedly warned that there is a significant risk of a further decline in the US stock market, hence these banks are being cautious with their capital investments.

In contrast, retail investors' enthusiasm is very high. On average in January of this year, retail investors poured as much as 1.5 billion US dollars into US stocks daily, setting a historical record. At the same time, the balance of money market funds held by retail investors remains at a historical high, implying that more funds will be transferred from money market funds into US stocks in the future.

Like other countries, in any investment field, when retail investor funds are the mainstay, it often implies that a downturn is approaching.